Employers beware, the devil is in the counterclaim

Some employers believe they can get away with anything and when they go unchallenged they succeed.

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Some employers believe they can get away with anything and when they go unchallenged they succeed.

Recently, a young woman who is being sued by her former employer for working for a competitor after she resigned became a client. As her employer surely knew, on about seven different grounds, its non-competition covenant would not survive judicial scrutiny.

This new client had resigned from the company with no job to go to because her terms of employment had been altered so fundamentally that she would have been unable to make any money if she had remained. Previously, she had been making $60,000 a year. When she resigned, in-house counsel warned her, as per her employment contract, if she worked in the industry during the three years after leaving, the company would "string her up by her ankles." When she finally secured a job in the industry several months later, her former employer immediately sued.

The employer had a history of successfully suing every employee who went to competition. This despite its knowing that if any of these cases ever reached trial, it would lose. A three-year non-competition agreement is unenforceable in Canada against any mere sales employee.

The company must have assumed no case would ever get too court. The former employer also was smart enough to not sue the new employer, which meant the new employee was unlikely to have financial help with his or her defence. As a practical matter, young modestly paid employees can not afford to fight and would have to resign from their new employment. By abusing the legal system this way, the employer could prevent former employees from competing and teach an object lesson to their staff for relatively little cost.

This time, their luck ran out. I had obtained for this young woman's father an eight figure settlement in a wrongful dismissal case. He was not prepared to let his daughter be taken advantage of.

Even more interesting, the employer told her that her contract forfeited commissions on sales for which the employer had not yet been paid. That made sense to her and she had no intention of seeking legal advice on the off chance they were wrong and, but for her father's wealth and the serendipity of being sued, she would never have retained counsel.

It turned out that there was a gap in her contract that permitted her to sue for those unpaid commissions. The contract precluded a claim for commissions owing if she was fired - not if she resigned. The commissions owing to her exceeded $200,000. Now, instead of playing defence, the battleground has completely shifted.

The irony is that she resigned, assuming nothing was owing to her and intended to go on her way. If the employer had not sued her, she never would have seen a lawyer and had her contract reviewed.

It is reminiscent of the recent case where Rona took went to trial, with little or no prospect of success, knowing that its violation of the Human Rights Code in not accommodating a wheelchair bound employee would, by necessity, be front and centre in the case and cause it more damage reputationally than the damage award would have caused.

Before you litigate or decide not to settle a case, consider the following:

- Does the employee have a valid counterclaim?

- Even if you win, might your conduct subject you to public ignominy?

- Is your defense of the case or your handling of the matter going to antagonize customers, suppliers or existing employees?

- Was your handling of this employee consistent with your corporate culture?

- Will the consequences of calling the necessary witnesses, for example, major customers, cost you more in bad will than the defense of the case itself?

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